Euro area inflation rose to a 10-year high, printing 3%. Despite the recent return of ABBA, this is not a return to inflation from that era, even though further near-term rises are thought likely. Tellingly, ABBA now perform with “Abatars” (virtual backing singers) demonstrating why the bargaining power of the labour market is not what it used to be in the 1970s either!
Labour data – non-farm payrolls – was this week’s other big data point. This is keenly watched, as it has potential to determine the speed and timing of the upcoming taper process as well as the pricing of rate increases in future years. August’s number missed by a very large margin to the downside. Surprisingly the interest rate markets priced in higher yields, whether this is the economics of less inflation worries, or traders fading the volatility in the monthly data, is hard to decipher. With equities seemingly focused on excess liquidity rather than economics, maybe the interest rate markets sensitivity to labour data going forwards will lessen, …… or possibly the reverse.
In Japan, PM Suga decided not to run in the LDP’s leadership election at the end of the month (due to failure to contain COVID-19), ensuring a change of hands. Chinese PMIs (official and Caixin) were weaker and contractionary, something worth watching as Chinese growth impacts global GDP, which will likely be revised lower by economists.
The ISM Manufacturing, New Orders and Services Indices all increased, with Prices Paid declining to 79.4 (84 exp., 85.7 prev.) The Conference Board measures all declined the ISM Employment index was just sub 50, at 49 (52.9 prev.).
The ADP measure of employment disappointed and despite continuing claims remaining in its downward trend Payrolls estimates were lowered thought the week. In the end Nonfarm payrolls disappointed massively, at +235k (733k exp., 943k prev.) and private payrolls also missed to the downside. The clue as to what had gone on came from Average Hourly Earnings, which were unexpectedly strong, at +0.6% MoM (0.3% exp., 0.4% prev.), suggesting that higher wage earners were only showing up in the data. Confirmation came from the Leisure and Hospitality sector, a typically low wage sector, which had been adding 200k to 400k per month but returned 0k for August.
The Unemployment rate came in as expected, at +5.2% (5.2% exp., 5.4% prev.) because the participation rate dropped to +61.7% (61.8% exp., 61.7% prev.) and the underemployment rate now stands at +8.8% (9.2% prev.).
2Q GDP was a surprisingly weak at -1.1% (2.5% exp., 5.6% prev.) this will challenge the BoC’s current view. Manufacturing PMI printed +57.2 (56.2 prev.).
CPI surprised the markets, statisticians and will give the ECB something to think about, printing YoY measure at +3.0% (2.7% exp., 2.2% prev.) and +0.4% MoM (0.2% exp., -0.1% prev.). Unemployment dropped to +7.6% (7.6% exp., 7.7% prev.) Retail sales disappointed -2.3% MoM (0.0% exp., 1.5% prev.), +3.1% YoY (4.5% exp., 5.0% prev.) and confidence measures declined a little.
French CPI surprised to the upside +0.7% MoM (0.5% exp., 0.1% prev.), +2.4% YoY (2.1% exp., 1.5% prev.) and consumer spending disappointed. German inflation managed to print +5.0% YoY (4.3% prev.) for Brandenburg state, something that it last did in the early 1990s. The nationwide CPI measure was a more sedate +0.1% MoM (0.1% exp., 0.5% prev.), +3.4% YoY (3.4% exp., 3.1% prev.), the same level at which the ECB decided to raise rates in July 2008.
Retail sales disappointed, unemployment beat expectations at -53.0k (-40.0k exp., -91.0k prev.) with the rate now at +5.5% (5.6% exp., 5.7% prev.) Italian CPI surprised at +0.3% MoM (-0.2% exp., -1.1% prev.), +2.6% YoY (2.1% exp., 1.0% prev.) Unemployment dropped to +9.3% (9.6% exp., 9.7% prev.), PMIs were expansionary and roughly unchanged.
Norwegian manufacturing PMI declined to 62.2 (63.3 prev.) and the unemployment rate reaffirmed the Norges banks’ stance, printing +2.7% (2.9% exp., 3.1% prev.).
Swedish PMIs declined, but were all above 60.
PMIs were expansionary but the composite and services declined, with manufacturing roughly unchanged.
Retail sales beat expectations +1.1% MoM (0.4% exp., 3.1% prev.) and +2.4% YoY (2.1% exp., 0.1% prev.) and the jobless rate dropped to + 2.8% (2.9% exp., 2.9% prev.) Industrial production disappointed at -1.5% MoM (-2.5% exp., 6.5% prev.) and +11.6% YoY (11.2% exp., 23.0% prev.) The next Japanese PM
will likely be decided by the LDP election on Sept-29th. Currently Ishiba-san and Kono-san are the leading candidates, with their main differences being focused on micro-economic policies relating to structural reform and income redistribution.
2Q GDP beat expectations and reaffirmed the RBA’s anticipated reductions in QE at +0.7% (0.4% exp., 1.8% prev.) and +9.6% YoY (9.1% exp., 1.1% prev.) House prices continued their upward march, despite lockdowns.